Upcoming Budget may raise inheritance tax on homes

"Inheritance Tax (IHT) currently is charged at 40% on estates over £325,000, though families passing a home to children or grandchildren can claim a further £175,000 "main residence allowance" - meaning a couple can normally pass on up to £1 million tax-free. Those limits have been frozen since 2020 while average UK house prices have risen by nearly 25%. The IFS warns that this freeze means many homes, particularly in the South East and London, now push estates above the threshold."

"In its pre-Budget briefing, the think tank said: "Inheritance tax was never designed to affect ordinary families, but house-price growth and unindexed thresholds mean it increasingly does." HMRC figures show about 27,000 estates paid inheritance tax in 2020-21, but the IFS expects that number to exceed 50,000 by 2030 if current thresholds remain unchanged, roughly 23,000 more families drawn into the tax over the decade, much of it driven by rising home values."

Treasury is reviewing how property wealth is treated ahead of the November Budget, with potential changes to inheritance tax. Current IHT charges apply at 40% on estates over £325,000, with a £175,000 main residence allowance per person, allowing couples to pass up to about £1 million tax-free. Thresholds have been frozen since 2020 while average UK house prices rose nearly 25%, increasing the number of estates exceeding the limits, especially in the South East and London. HMRC recorded about 27,000 estates paying IHT in 2020-21; projections estimate more than 50,000 by 2030 if thresholds stay unchanged. The Chancellor may consider raising thresholds, adjusting allowances, or simplifying property reliefs.

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